Unfortunately, insurance fraud is on the rise in America, and life insurance is no exception. Life insurance fraud can take many shapes and forms, as it can be committed by an applicant, policyholder, or insurance agent. To help you get the best life insurance experience and steer clear of insurance fraud, we’ve rounded up the most common types of fraud, so you know how to spot and avoid them altogether.
When it comes to life insurance fraud, lying, omitting, or misrepresenting information on an application is one of the most common types.
While this often happens on accident – for example, mixing up the months of your last health check-up or being a few numbers off from your height or weight – it can also be done purposefully.
For applicants who want to boost their chances of better rates or approval, it may be tempting to omit your complications, like being a long-time smoker.
A more extreme example of life insurance fraud is lying about the death of someone real or who never existed. Often people do this in order to receive their insurance benefits.
Not only will this render the policy ineffective, but it can also result in criminal prosecution. Life insurance companies closer monitor and verify any claims made. Thus, this fraudulent action is not likely to go unnoticed.
Insurance fraud is not exclusive to customers. Fraud can also be on behalf of an agent. Examples of agent fraud include urging a customer to increase coverage or purchase an additional policy in order to receive a commission.
On the extreme end, agents can also sell fake policies or pocket the money you’re paying toward your premium instead of maintaining your policy.
Working with reputable agents and insurance companies can help to limit the chance of encountering a bad actor.
Punishments for committing life insurance fraud are determined on a case-by-case basis. Ultimately, the consequences will depend on the severity of the fraud.
One consequence of life insurance fraud is a blanket denial of coverage. Because many life insurance companies share databases for cataloging applicants, you may have trouble receiving coverage for years. Even if applying with a different company.
Because life insurance deals are best when purchased early on. Thus, the last thing you want is a flagged profile that delays you getting the coverage you need.
If it is discovered that you lied at some point during the application, there is the risk of an insurance provider not paying the benefit to beneficiaries upon your death.
The last thing you want is for your insurance policy to be rendered inactive after years of paying the premium. To help protect your loved ones, you’ll want to be honest to keep your policy active and eligible.
In the case that your life insurance provider is empathetic, they may allow fraudsters to keep their policy, but not without upping the cost.
Not all insurers are going to allow fraud committers to keep their policy. But, even if they do, it’s likely you won’t go unscathed. Expect a price increase or similar modification to better match your actual risk.
The life insurance industry is one that commonly encounters fraudsters, both consumers and agents themselves. Regardless of the type of fraud, you’ll want to stay far away from it. This will help you avoid criminal action, policy cancellation, or price increases. Instead, look for the best life insurance policies and stay honest during the application process. This will help you avoid any headaches and ensure the correct payout when it is time.
